RBI proposes to set up new entity for retail payment systems, invites comments

The Reserve Bank of India (RBI) has proposed setting up of a new pan-India umbrella entity (NUE) for retail payment systems, which will be responsible for setting up, managing and operating new payment systems, especially in the retail space, including ATMs, White Label PoS, Aadhaar based payments and remittance services. RBI has floated a framework for establishing the new entity, and has invited comments on the draft framework by February 25, 2020.

The new entity, will also also have to develop new payment methods, standards and technologies, and monitor related issues in India and internationally. It will have to operate clearing and settlement systems and manage risks such as settlement credit, the central bank said. The proposed entity can either be a for profit company or a non-profit organisation, RBI said.

The RBI will approve the Directors of the NUE, and will also nominate a member on the entity’s board. People appointed to the Board should conform to RBI’s “fit and proper” criteria, that is, should have “financial integrity,” “good reputation and character,” and “honesty”. They should also have, among other things, never been convicted by a court for any economic offence, or violating laws administered by the RBI.

Capital requirements and shareholding: The new entity will be a company incorporated in India under the Companies Act, 2013, with a minimum paid-up capital of Rs 500 crore, RBI said. “The promoters shall upfront demonstrate capital contribution of not less than 10% i.e. Rs 50 crore at the time of making an application for setting up of the NUE. The promoter/promoter group shareholding shall be diluted to a minimum of 25% after 5 years of the commencement of business of the NUE,” RBI added.

The NUE will have to maintain a minimum net worth of Rs 300 crore at all times, it said.

No single promoter / promoter group shall have more than 40% investment in the capital of the NUE.

If the applicant entity has any Foreign Direct Investment (FDI) / Foreign Portfolio Investment (FPI) / Foreign Institutional Investment (FII), it should fulfil the capital requirements according to the FDI policy.

Eligible promotors: Promotor/promotor group entities “owned and controlled by residents,” as per the Foreign Exchange Management Act, with 3 years’ experience in the payments ecosystem as Payment System Operator (PSO) / Payment Service Provider (PSP) / Technology Service Provider (TSP) are eligible.

Any entity holding more than 25% of the paid-up capital of the NUE shall be considered to be a Promoter.

Are there going to be multiple such entities? One thing to note here is that RBI’s official communication said that it intends to “set up new pan-India umbrella entity / entities” — does it mean that the apex bank is proposing multiple NUEs? We have reached out to them for more details.

Competition for the NPCI? The framework for establishing the NUE is in line with the National Payments Corporation of India (NPCI), which was established by the RBI in 2008, as a not for profit organisation, for operating retail payments and settlement systems in India. NPCI manages the UPI and RuPay, and also provides electronic tolls payments via FASTag.